Oil ETFs plagued by oversupply concerns

Oil has rallied recently, but ETFs struggle as overproduction continues to offset gains

Despite recent rallies, oil ETFs are still offset supply issues and tepid demand.

Oil is also still facing elevated production levels, as OPEC keeps production up to put pressure on high-cost rivals like U.S. shale oil producers, ETF Trends reported. But the International Energy Agency projects that it will be several years before OPEC can price out the high-cost competition.

Saudi Arabia has said that it would join a production freeze deal if Iran also agreed to cut back output, according to the report. But Iran says it should be allowed to boost its production to previous levels before sanctions over its nuclear program take effect.

“Spreads in the U.S. and Europe moved deeper into contango this week as the return of Canadian barrels (expected) and the speedy return of Nigerian production (not expected) erased the briefly lived, but abnormally high level of unexpected outages and returned the spread narrative back towards a generously oversupplied physical market,” OilPrice.com reported.

The global crude oil supply chain is also experiencing slowdowns, from wildfires in Canada to pipeline attacks in Nigeria and outages in Venezuela. The upshot of all of this is that Goldman projects production will remain below demand through the second half of the year.

Traders who are hoping to profit from falling oil can choose from several ETF options, according to ETF Trends. The ProShares UltraShort Bloomberg Crude Oil, for instance, tries to reflect the two-times inverse or -200% daily performance of WTI crude oil.

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